“The bond market is difficult for most kinds of public finance transactions right now,” said Rodney Wendt, executive director of the Washington Economic Development Finance Authority, the state-authorized agency that issued the tax-exempt municipal solid-waste bond to Columbia Pulp.
All signs had indicated that the bond would sell and that finally, after several years of working on financing, construction was imminent.
CEO John Begley announced to several community leaders in the fall that the company would break ground on its 449-acre straw pulp mill near Starbuck in December.
“We had received indications that an investor was going to buy at least half of the bond,” Begley told. “It hadn’t even gone to market yet, but then the equity supplier couldn’t come up with the money. It caught us by surprise.”
Now plans for this wheat straw mill, estimated to bring more than 100 jobs to Columbia County, are once again on hold as avenues for financing are explored.
But Begley is hopeful that the new year will bring success. The company has to wait until the state reallocates bonds for 2017. However, the state can only sponsor a certain amount of tax-exempt bonds each year.
“The idea is that we’ll pull the bond back and start again with a fresh approach now that it’s the beginning of a new year,” Begley said.
Goldman-Sachs, the global investment firm headquartered in New York City, is the underwriter of Columbia Pulp’s bond.
“They’ll be the ones responsible for taking the bonds to the market,” Begley said. “And they’re the largest in the world at doing this.”
The domestic market for municipal bonds, however, isn’t helping the situation.
“The bond market is in turmoil because of the election, because of uncertainty,” Port of Columbia Manager Jennie Dickinson said.
About the proposals
Proposals floated by both President-elect Donald Trump and House Republicans could lower rates on taxable investment interest and personal income taxes, according to December reports in The Wall Street Journal.
If adopted, this could be hard on tax-free municipals bonds, such as the one Columbia Pulp is counting on. Many finance advisers are urging investors to buy higher-risk, high-yield municipal bonds.
Meanwhile, interest rates on bonds are increasing and Begley said that where the company had designed its business plan around a 6-percent rate for the bond, now they’re looking at 8.5 or 9 percent.
“We have to take a hard look at that,” he said.
When asked whether the company could absorb those increases, his response was optimistic.
“Yes, we can,” he said. “The question is, are there better ways though. When the interest rate for the bond was at 6 percent, that was the best way to go. When it’s at 8.5 or 9, we have to sit back and say, ‘What’s the best way to fund this project?’”
Once financing is secured, construction will begin immediately, according to Begley.
“It will probably only take two-three weeks after the bond sells before we break ground,” he said. “We need to market the bonds, price them, close on them and then we’re ready to go. All the permits in place, and we’re shovel ready.”
Dickinson, whose family owns the property Columbia Pulp will buy near Lyons Ferry, said that a purchase and sales agreement for the 40 acres of industrial land and 400 acres of pasture land that will be a buffer zone is in place and a closing date had even been set.
“But we have extended the closing into February,” Dickinson said. Columbia Pulp has held an exclusive purchase option on the land, now valued at around $670,000, since 2014, she said.